In the absence of meaningful reform, any help given to the South African government will only sustain the hardship South Africans have endured for at least a decade.

This is the gist of the message contained in letters that we at the Institute of Race Relations (IRR) have sent this week to the largest donors to the International Monetary Fund (IMF) – the United States of America, Japan, China, Germany, France, United Kingdom, Italy, India, Russia, Brazil, Canada, Saudi Arabia, Spain, Mexico, Netherlands, South Korea, Australia, Belgium, Switzerland, and Indonesia.

This is not a step we have taken lightly.

The reality is that our creditors or benefactors need to know why South Africa has been brought to its knees once again, and why the people of this country, especially the poorest and most vulnerable, are enduring avoidable hardship.

Our message to the donor nations of the IMF is simple: Ne vous trompez pas. Lass dich nicht irreführen. Do not be misled.

The provision of financial support to a South African government that has not denounced and distanced itself from the destructive policies that have wrecked the aspirations of generations will be the act of sustaining the hardship South Africans have endured for at least a decade, and are likely to continue enduring.

What we are asking the IMF to bear in mind is government policy, and the intentions of the African National Congress (ANC) and its alliance partners, the South African Communist Party (SACP) and the Congress of South African Trade Unions (COSATU).

These have had, and continue to have, damaging effects on the economy and on the country’s prospects of creating a stable, fair and prosperous future.

Mandate

It is worth restating the mandate of the IMF, which is that it ‘promotes international monetary cooperation and provides policy advice and capacity development support to help countries build and maintain strong economies’.

The importance of this mandate, especially to developing nations, cannot be overstated. Much is made of transformation, but the most vital transformation is that of transforming hardship and poverty into inclusive, sustainable, and real growth.

It was 43 years ago that the United Nations Special Committee Against Apartheid convened a summit at the Palais des Nations in Geneva to decide how the international community must respond to the worsening situation in South Africa, following the South African state’s use of violence against its own citizens in pursuit of its own ideological ends and its own political survival.

South Africa is no longer the nation it was then, and for this much credit must go to the people of this country who, when the duty fell on them to alter the trajectory of our country, made the right decision to give freedom a fighting chance. The changes for the betterment of our country achieved since 1977 attest to the strength, integrity, and decency of the people of South Africa. Recently, some claims were made that our country was better off under the apartheid regime. This is a sentiment of dangerous inaccuracy that overlooks the dehumanization of especially black South Africans under the rule of ideologically entrenched racial discrimination. It is also a sentiment that ignores the vehemence and vigour with which the IRR fought against oppression and for a free South Africa.

Travesty

But it is a travesty that now, more than four decades after the summit at the Palais des Nations, our people, especially the most vulnerable and poorest South Africans, face circumstances tragically reminiscent of those that so appalled the international community 40 years ago: a violent, oppressive and destructive ideology rules, enriching a minority, while the majority of people live in fear, poverty, and destitution.

At the beginning of this month, it was made public that the South African government had entered negotiations with the International Monetary Fund regarding a bailout of $4.2 billion. The circumstances that have led to this decision by the governing ANC, in alliance with the SACP and COSATU, have been in development for years – the IRR has been monitoring the gradual worsening or weakening of the economy. During this time of wasted opportunities, the IRR maintained its role of now almost a century – that of being a leading voice in warning successive governments to change course by pursuing alternative, pro-freedom, pro-growth policies and promoting this argument in all spheres of influence.

In the past, the IRR has recognised the merit in the South African government seeking to approach the IMF for support, given the opportunity this would provide to strengthen the cause of structural change and reforms needed to reverse the decline and malaise that have come to characterise the South African social economy. With the global economic impact of the Covid-19 pandemic and the accompanying government decisions to deal with the pandemic, the economic situation in South Africa has become unquestionably dire. From this has arisen the decision by the ANC and its allies in the SACP and COSATU to approach the IMF.

But we are urging the IMF not to overlook the fact that the Covid-19 crisis comes on top of several other crises, the combination of which has pushed South Africa near the brink. The Covid-19 pandemic did not cause the structural weaknesses in the economy or undermine the government’s ability to improve the lives of all South Africans – it merely exposed it. As the IRR has been warning successive governments for well over a decade, it is the failure of policy that has seen unemployment rise, productivity and economic growth stagnate and decline, investment and capital flee the country, social unrest increase, and civil dissatisfaction climb. 

Marked success

And all this wells from the ANC’s deviating significantly from the policy course it had pursued to marked success in the first period of its governance, from 1994 to approximately 2008. Through pragmatic and restrained fiscal policy and a liberalised economic policy, the governments of presidents Mandela and Mbeki achieved much progress that improved the material circumstances of millions of South Africans, especially black South Africans bearing the unjust burden and socio-economic devastation of apartheid and its legacy. Important progress was made in righting the fiscal ship of South Africa, illustrated by the achievement of budget surpluses in 2007 and 2008. In 2008, South Africa’s debt-to-gross domestic product ratio stood at 27%: a testament to the prudence of government spending in the preceding decade. As  fiscal stability improved, economic growth started to resemble the world average for the first time in decades. GDP growth rates averaged above 5% for the years 2004 to 2007. While the government at the time faced accusations of so-called “jobless growth”, the data exposes this as an untrue and politically opportunistic accusation. Unemployment fell by almost 10% in those years, its only sharp, sustained fall since 1994.

However, with the change in leadership of the ANC in 2007, combined with the economic crisis of 2008/09, South Africa’s outlook changed for the worse. While state capture has received the bulk of the blame for the failures of government over the last decade, the reality is that changes in government policy are responsible. Fiscal prudence was abandoned in favour of uncurbed government expenditure, while state intervention in the economy, already prevalent during the Mbeki years, was significantly stepped up, in mining, labour, agriculture, investment, economic planning, income regulation, and property rights. Over the next decade, South Africa would start reaping the whirlwind.

As IRR Head of Policy Research Dr Anthea Jeffery has pointed out in her latest report, The Ten-Year Lockdown, with worse still to come, while the Covid-19 lockdown has largely been lifted, ‘the country has … been in an unacknowledged policy lockdown for at least the last ten years’.

Radical Economic Transformation

This was especially true after Jacob Zuma came to power in 2009 ‘and began implementing “radical economic transformation” (RET) policies aimed at changing the ownership, control, and very structure of the economy’.

Dr Jeffery goes on: ‘Contrary to widespread belief, RET policies have continued under President Cyril Ramaphosa – whose rise to power was also facilitated by the SACP – and whose ‘new dawn’ pledges have thus far proved meaningless. If anything, the president’s reform rhetoric has simply provided cover for major additional RET policies implemented under his watch. Mr Ramaphosa has also recently made it clear that “radical economic transformation” must now ‘underpin’ the ‘reconstruction’ of the economy.’

The consequences of this approach are evident in what has transpired over the past decade, she writes, with the private sector being subjected to ever more onerous, costly, and damaging regulation; coercive labour laws being made more rigid; black economic empowerment (BEE) goalposts being ratcheted up, with still more damaging effects; and property rights being steadily eroded, to the point where the Constitution is now to be amended to allow expropriation without compensation (EWC) – nationalisation by another name.

‘The rigour of this 10-year policy lockdown remains as yet largely unrecognised. However, by the time the Covid-19 lockdown started in March, the impact of the policy lockdown was clearly visible.

‘Labour law rigidities and a national minimum wage had continued to deter employment and price the unskilled out of jobs, adding to social instability. Business autonomy and operational efficiency were being steadily whittled away by escalating employment equity and BEE rules. Most property owners, both individual and corporate, faced a growing risk of EWC. Pressure for prescribed asset requirements for pension funds was increasing. So too were demands for a wealth tax, stricter exchange controls, and a money-printing mandate for the South African Reserve Bank (SARB).

Crippled the economy

‘The 10-year policy lockdown had thus severely hobbled the private sector before the Covid-19 pandemic began, with the economy already in a technical recession. Since then, more than nine weeks of hard lockdown have crippled the economy and pushed it down on to its knees. GDP, warns Business For South Africa (B4SA) could contract by between 10% and 17% this year. The International Monetary Fund (IMF) sees the budget deficit reaching 13.3% this year, with public debt as a ratio of GDP rising to 86% in 2021. Add in the state’s other liabilities (such as its guarantees of Eskom debt) and overall public debt looks set to increase to 110% of GDP by 2023.’

Dr Jeffery notes that some 100 000 businesses barred from normal operation under the lockdown could go bankrupt or give up the struggle to survive. The unemployment rate is expected to rise to 50%, as minister of cooperative governance and traditional affairs Dr Nkosazana Dlamini-Zuma said in late May. The consumer spending that has long contributed some 60% to GDP will be sharply reduced. Tax revenues will go down this year by a projected R285bn, worsening the R370bn deficit anticipated in the February 2020 budget. But public spending – on Covid-19 relief for lost income, larger social grants, additional bailouts for distressed SOEs, and increased interest payments – will nevertheless have to go sharply up.

And Jeffery points out that the economic devastation from the Covid-19 lockdown ‘will be more severe and prolonged in South Africa than in other countries where lockdowns have also been deployed … largely because the 10-year policy lockdown already in place had brought so many firms and individuals to the brink’.

On top of this, as Dr Jeffery concludes, the Tripartite Alliance ‘will seek to bar retrenchments, step up BEE requirements, forge ahead with EWC bills, speed up the introduction of the NHI, and put great pressure on pension funds to invest in “developmental” projects managed by state-run DFIs. It will demand both a damaging wealth tax and much stricter exchange controls to limit capital flight. It will keep pushing for a major shift in monetary policy to gain access to SARB reserves, reduce interest rates to 0% or less, and start printing money to fund state spending under the rubric of quantitative easing and modern monetary theory.

Rapid adoption

‘It will use the economic devastation triggered by the lengthy lockdown to push for the rapid adoption of these measures as part of essential “reconstruction” and the “radical economic transformation” intended to underpin this process.’

Against the record of ‘massive inefficiency and often rampant corruption in the public service and SOEs’, she argues, ‘the notion that increased state control will speed up economic recovery and ensure its success should be laughed out of court’.

Yet, she fears, the opposite is likely, because those who speak out in defence of capitalism – which has in fact helped lift billions out of poverty all around the globe – ‘are likely to be limited’.

The risk is that ANC/SACP demands for ever more public ownership and comprehensive state control will earn greater attention, and ‘may become the only accepted narrative’.

As I began by saying, the scale of this risk is already evident in the hardships South Africans have endured, now, for a decade.

It doesn’t have to be this way – which is why we believe the IMF needs to know what it is at stake before it considers its potential role, in our case, in helping to ‘build and maintain’ a strong economy.

If you like what you have just read, subscribe to the Daily Friend

Previous article
Next articleCould this be South Africa’s turning point?
Hermann Pretorius
Hermann studied law and opera before entering politics and think tankery – an obvious career path. In furtherance of the logicality of his career trajectory, he worked for the election campaign of a liberal, formerly growing opposition party in 2019. In an attempt to deal with his PTSD from this latter experience, he took up a position as an analyst at the IRR, where he is currently the IRR’s Deputy Head of Policy Research. A Protestant, landless, Anglophilic, Afrikaans classical liberal still awaiting his letter of acceptance to the Patriarchy™, Hermann tries to make the best of, you know, things.

6 COMMENTS

  1. IMF handouts to marxist goverments in this world, are the number one cause of extenuating the suffering of the citizens of such countries.
    The trillions of dollars of aid, paid over the last century to Africa, has benefitted who?
    The millions of tonnes of food aid, has done what exactly?

    The IMF, is like the rich guy in the car at the traffic light, he hands the beggar a few bucks, as long as the beggar does not damage his car, or talk to him to much, just a “nuisance” tax he has to give every now and again.

  2. The IRR is to be thanked and congratulated for this timely letter to the IMF. The time has come for the mainstream media to inform the man in the street of the dangers this government’s idiotic policies are doing to their livelihoods.
    Big business needs also to stand up and speak up. Far too long has it been complicit. When the ANC says; ‘Jump’ the answer has been; ‘how high’.

  3. It appears that the IRR has also fallen for the biggest contrick ever perpetuated by the UN. It is clear that the UN is merely a bureaucratic proxy for the powers behind it: the major banks and those who control them. The (Gigarich).

    The contick19 was a planned event used by the financial 3% Gigarich to increase their wealth to ensure their capability of influencing world Governments to comply with the UN mandates in return of redistribution of wealth from the richest to the poorest. Of course the poorest are those with their begging bowls mostly from Africa.

    It is all hidden from the public eye the pretext of legitimate business activities. The NGO’s and Non-Profits and “Trade unions” who are in cahoots use various guises in conjunction with populist sanctimonious slogans “human rights, sustainable development”, “environmentalist protection causes”, such as “Save our Children, Carbon dioxide, climate change”.
    This latest one is basically engineered by the Davos and Bilderberg elite under the Bill & Melinda Gates Foundation in conjunction with John Hopkins.
    One simply needs to Recall that Johns Hopkins was one of the lead partners with the Gates Foundation at the World Economic Forum’s Event, the 201 Simulation, where 65 million people were predicted to die from the coronavirus pandemic

    One only had to recently listen to Ramaphosa press or television briefing that clearly stated what the aims of the ANC alliance are and that the covid 19 or Contrick19 had allowed them to start the rapid Radical Economic Transformation objective of the NDP. The NDP is simply the Agenda 2030 at country level.

    Oh and yes it will be called a conspiracy theory, yet is is still unfolding as planned.

    • I owe the IRR an apology. Yes John Kane-Berman has also seen the truth. I have seen his article on https://irr.org.za/media/the-most-unusual-advertising-campaign-in-history-politicsweb. He illustrates the policy I highlighted regarding Rhamaphosa’s statement “There is little reason to suppose that Cyril Ramaphosa has lost his appetite for any of this. He recently declared that Covid-19 “gives a stronger rationale to transform and restructure” the “colonial and racist economy”. His main job is to lend the whole transformation enterprise a face of respectability for the benefit of all those in business and the media who are still willing to be deceived.”
      I apologise.

  4. South African government is headed by arrogant intransigent dinosaurs who were taught the communist ideology 50 years ago and refuse to allow the economic facts to interfere with their ideological beliefs.

    Ramaphosa is not a business man. He was chosen as one of the ANC political elite to be the beneficiary of multiple BEE deals and his fortune was amassed from being gifted shares by White owned companies.

  5. It’s time that all the people realise that there is a certain system or idiology being put together to take the super rich even further and on the skeletons of the normal public we are their stepping stones

LEAVE A REPLY

Please enter your comment!
Please enter your name here